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FEDERAL  TRADE  COMMISSION 


A  SYSTEM  OF  ACCOUNTS 


FOR 


RETAIL  MERCHANTS 


JULY  15,  1916 


WASHINGTON 
GOVERNMENT  PRINTING  OFFICE. 

1916 


fc.5  FEDERAL  TRADE  COMMISSION 


A  SYSTEM  OF  ACCOUNTS 


FOR 


RETAIL  MERCHANTS 


JULY  15,  1916 


OF  THE 
IVERSITY 


WASHINGTON 

GOVERNMENT  PRINTING  OFFICE 
1916 


EDWARD  N.  HURLEY, 

Chairman. 
WILLIAM  J.  HARRIS, 

JOSEPH  E.^Av?Es."""'an'      FEDERAL  TRADE  COMMISSION 

WILL  H.  PARRY. 

GEORGE  RUBLEE.  WASHINGTON 

LEONIDAS  L.  BRACKEN, 

Secretary. 

July  15,  1916. 
To  the  retail  merchant: 

The  Federal  Trade  Commission  has  found  that  the 
majority  of  retail  merchants  do  not  know  accurately 
the  cost  of  conducting  their  business  and  for  this 
reason  they  are  unable  to  price  their  goods  intelli- 
gently.  There  must  "be  decided  improvement  in  this 
direction  "before  competition  can  be  placed  upon  a 
sound  basis  and  before  we  can  expect  a  decrease  in 
the  heavy  business  death  rate  among  retail  merchants. 

With  the  object  of  aiding  retail  merchants  to 
improve  the*ir  accounting  methods  we  have  outlined 
a  simple  system  of  accounts  which  provides  for  sup- 
plying the  information  necessary  to  properly  direct 
a  retail  business.   I  commend  the  pamphlet  to  your 
attention  and  feel  satisfied  that  if  you  will  read  it 
carefully  you  will  find  many  helpful  suggestions. 

The  pamphlet  has  been  prepared  under  my  direction 
by  Mr.  Robert  E.  Belt,  Chief  Accountant,  and  Mr. 
•R.  W.  Gardiner,  Assistant. 

Trusting  we  may  have  your  hearty  cooperation,  I  : 
am, 

Very  respectfully  yours, 


(7 


Chairman. 
3 


341831 


CONTENTS. 

Page. 

Introduction 5 

Books  of  account  and  statements 6 

Journal 7 

General  cash  book 7 

Invoice  book 8 

Sales  and  credit  tickets 8 

Ledger 8 

Monthly  summary  of  business 9 

Profit  and  loss  statement 9 

Balance  sheet '. 10 

Accounts  and  their  explanations 10 

Real  accounts 10 

Nominal  accounts 13 

Forms  of  statements 16 

Monthly  summary  of  business 17 

Profit  and  loss  statement 18 

Balance  sheet 19 

4 


A  SYSTEM  OF  ACCOUNTS  FOR  RETAIL  MERCHANTS. 


INTRODUCTION. 

There  is  a  tendency  among  retail  merchants  to  conduct  their  busi- 
nesses without  an  adequate  system  for  determining  their  costs. 
This  condition  carries  with  it  various  undesirable  results.  In  the 
first  place,  the  merchant  is  unable  to  price  his  goods  intelligently 
and  conduct  his  business  upon  sound  business  principles.  In  the 
second  place,  he  is  unable,  when  seeking  credit,  to  produce  a  correct 
statement  of  his  financial  condition  which  would  enable  a  banker  to 
extend  to  him  the  full  credit  to  which  he  is  entitled*  He  thereby 
limits  the  possible  expansion  of  his  business. 

There  are  several  forces  at  work  which  compel  the  retail  merchant, 
if  successful,  to  keep  books,  and  the  better  and  more  comprehensive 
his  methods  the  greater  chance  he  has  of  being  successful. 

The  first  of  these  forces  is,  of  course,  competition,  which  at  times 
compels  him  to  make  close  prices.  The  second,  and  one  of  vital 
importance,  is  the  attitude  of  the  banks  regarding  the  granting  of 
credit.  Banks  are  paying  more  and  more  attention  to  the  accounting 
methods  used  by  the  merchant  to  whom  they  extend  credit.  They 
are  willing  to  give  larger  loans  and  very  often  more  liberal  terms  to  the 
merchant  who  keeps  his  books  in  a  way  that  enables  him  to  show 
the  bank  at  any  time  just  how  his  business  is  progressing.  A  mer- 
chant who  can  show  progress  will  undoubtedly  receive  more  con- 
sideration with  the  same  amount  of  assets  than  one  who  can  not. 
Even  if  he  is  successful  but  can  not  show  it  because  of  his  book- 
keeping methods  the  bank  will  not  consider  him  a  desirable  credit 
risk. 

Another  very  important  point  to  which  the  bank  gives  considera- 
tion is  whether  the  prospective  borrower  is  making  proper  provisions 
for  depreciation  on  stock,  buildings,  and  fixtures,  and  his  books 
should  be  so  arranged  as  to  show  the  amount  of  these  provisions. 
No  merchant  can  be  said  to  be  managing  his  business  properly  unless 
adequate  provision  is  made  for  depreciation. 

The  system  of  accounts  outlined  in  this  bulletin  has  been  devised 
to  meet  the  requirements  of  retail  merchants.  The  aim  has  been  to 
devise  the  least  involved  system  which  will  give  the  information 
essential  to  successful  management.  The  best  system  of  accounts 


6  SYSTEM    OF   ACCOUNTS   FO3  RETAIL   MERCHANTS. 

for  any  business  is  one  which  furnishes  the  information  required  with 
the  least  effort. 

The  value  derived  from  an  adequate  system  of  accounts  is  obvious. 
The  greatest  value  is  that  of  making  comparisons  and  analyzing  dif- 
ferences. But  before  any  fruitful  comparison  can  be  made  between 
figures  of  different  periods  or  between  figures  of  different  stores,  it  is 
absolutely  necessary  that  the  systems  be  uniform.  With  a  uniform 
system  of  accounts  in  use,  differences  in  items  reflect  differences  in 
conditions,  while  without  a  uniform  classification,  differences  in 
items  may  reflect  only  differences  in  accounting  classification. 

In  order  to  maintain  the  simplicity  of  the  system,  no  department- 
alization of  the  accounts  is  provided  for,  but  any  concern  operating 
distinct  departments  can  readily  adjust  the  system  to  show  the 
results  obtained  in  each  department. 

A  merchant  in  order  to  price  his  goods  properly  must  know  his 
overhead  expenses.  With  a  proper  arrangement  of  his  accounts  the 
percentage  of  overhead  may  be  readily  obtained.  Goods  not  priced 
high  enough  to  cover  this  percentage  are  actually  sold  at  a  loss. 
The  most  convenient  way  of  arriving  at  the  proper  percentage 
to  add  to  the  first  cost  of  goods  for  overhead  is  to  use  the  average 
ratio  of  operating  expenses  to  net  sales  covering  a  past  period.  For 
instance,  if  a  merchant's  annual  sales  for  the  last  fiscal  year  were 
$25,000  and  the  expense  of  conducting  his  business  was  $5,000,  his 
overhead  was  20  per  cent.  By  adding  the  desired  percentage  of 
profit  on  sales  to  this  overhead  percentage,  and  deducting  from  100 
gives  the  percentage  of  invoice  cost  to  selling  price.  The  invoice 
cost  of  an  article  divided  by  this  percentage  gives  the  selling  price. 

The  rapidity  of  the  turnover  is  a  very  important  element  in 
conducting  a  retail  business.  It  is  obvious  that  an  increase  in 
turnover  goes  hand  in  hand  with  an  increase  in  profit.  A  slow 
turnover  may  be  due  to  poorly  selected  stock,  to  overstocking, 
or  to  an  inefficient  selling  organization.  No  effort  should  be  spared 
to  increase  the  turnover  to  its  maximum.  To  ascertain  the  turn- 
over divide  the  cost  of  goods  sold  during  the  year  by  the  cost  of 
the  average  stock  carried. 

BOOKS  OF  ACCOUNT  AND  STATEMENTS. 

• 

To  operate  the  system  of  accounts  here  outlined  requires  but  four 
books  of  account,  namely,  journal,  general  cash  book,  invoice  book, 
and  ledger.  Sales  tickets  and  credit  tickets  are  used  for  recording 
sales  and  sales  returns. 

From  these  books  certain  statements,  particularly  a  monthly  sum- 
mary of  business,  a  profit  and  loss  statement,  and  a  balance  sheet, 
should  be  prepared  at  definite  periods  in  order  to  present  the  results 
in  comprehensive  form. 


SYSTEM    OF   ACCOUNTS  FOB  RETAIL   MERCHANTS.  7 

JOURNAL. 

The  ordinary  two-column  journal  can  be  used.  The  opening  entry 
is  an  inventory  of  the  assets  and  liabilities. 

The  totals  of  the  charge  sales  as  shown  by  the  charge  tickets  should 
be  entered  in  the  Journal,  debiting  Accounts  Receivable,  and  crediting 
Sales.  The  totals  of  the  credit  tickets  are  also  entered  in  the  Journal, 
debiting  Sales  with  returns  and  Sales  Allowances  with  price  con- 
cessions and  crediting  Accounts  Receivable. 

Transactions  which  do  not  go  through  either  the  Cash  Book  or 
Invoice  Book  should  also  be  journalized.  These  entries  comprise  such 
items  as  notes  receivable  and  payable,  allowances  or  corrections  of 
purchase  invoices  after  entry  in  the  Invoice  Book,  the  various  adjust- 
ing entries  at  the  end  of  the  month,  and  the  closing  entries  at  the 
end  of  the  fiscal  period. 

Journal  entries  affecting  trade  customers'  and  trade  creditors' 
accounts  will  also  have  to  be  posted,  respectively,  to  Accounts  Receiv- 
able account  and  Accounts  Payable  account. 

GENERAL  CASH  BOOK. 

This  book  is  for  recording  all  cash  transactions.  The  left  hand,  or 
debit,  side  is  for  recording  receipts,  and  columns  should  be  headed 
as  follows,  in  the  order  named :  Date,  Name  of  Account,  Description, 
Ledger  Polio  or  LF,  Collections  on  Accounts  Receivable,  Cash  Sales, 
and  General  Accounts.  The  right  hand,  or  credit,  side  is  for  record- 
ing  payments,  and  these  columns  should  be  headed:  Date,  Name  of 
Account,  Description,  Check  No.,  Ledger  Folio  or  LF,  Discount  on 
Purchases,  Payments  on  Accounts  Payable,  and  General  Accounts. 

The  total  cash  receipts  of  each  day  should  be  deposited  daily  in  bank 
and  all  payments  should  be  made  by  check.  The  total  of  cash  sales 
for  the  month  should  be  checked  against  the  total  of  cash  sales  tick- 
ets, and  is  then  posted  to  the  credit  of  "  Sales,"  that  of  the  "  Collec- 
tions on  Accounts  Receivable"  to  the  credit  of  "  Accounts  Receivable 
account,"  and  that  of  " Payments  on  Accounts  Payable"  to  the 
debit  of  "  Accounts  Payable  account."  The  total  of  the  Discount 
on  Purchases  column  is  also  posted  to  the  debit  of  Accounts  Payable. 

All  payments  for  expense  items  other  than  petty  cash  should  be 
entered  on  the  cash  book  as  made  and  posted  therefrom  to  the  proper 
accounts.  At  the  end  of  the  month  all  expense  bills  for  the  month 
should  be  paid,  so  as  to  insure  the  expense  being  charged  in  the  proper 
month. 

Petty  cash  disbursements,  such  as  car  tickets,  telegrams,  and  such 
minor  items  for  which  it  is  not  expedient  to  draw  checks,  sh6uld  be 
handled  as  follows: 

A  check  should  be  drawn  for  an  amount  sufficient  to  cover  petty 
disbursements  for  a  definite  period.  At  the  end  of  the  period  the 


8  SYSTEM    OF   ACCOUNTS  FOE  KETAIL   MERCHANTS. 

cashier  should  prepare  his  petty  cash  statement,  which  should  be 
supported  by  vouchers,  and  a  check  drawn  for  the  exact  amount  of 
the  statement,  thereby  restoring  the  petty  cash  fund  to  the  original 
amount.  This  check  should  be  entered  in  the  cash  book  in  the 
regular  way,  charging  the  various  expense  accounts  as  shown  by  the 
petty  cash  statement. 

The  balance  of  the  general  cash  book  at  all  times  should  check  with 
the  balance  as  shown  by  the  check  book  plus  the  amount  advanced 
for  petty  cash. 

In  the  check  book  keep  checks  and  deposits  footed  separately. 
When  the  bank  book  is  balanced,  check  up  the  bank  list,  then  re-ar- 
range the  checks  in  numerical  order,  and  check  with  the  stubs.  If  any 
checks  are  outstanding,  note  them  on  the  stub  and  deduct  from  total 
of  checks  drawn;  the  check  book  balance  will  then  agree  with  the 
bank  book  balance. 

INVOICE  BOOK. 

This  book  contains  the  record  of  the  invoices  or  purchases  of  mer- 
chandise only  and  should  carry  the  f ollowing  headings :  Date  of  Entry, 
Date  of  Invoice,  Number  of  Invoice,  From  Whom  Purchased,  Ad- 
dress, Ledger  Folio  or  LF,  and  Amount  of  Invoice. 

The  postings  are  made  direct  from  this  book  into  the  Purchase 
Ledger  and  the  total  at  the  end  of  the  month  carried  to  the  debit  of 
Merchandise  Purchases  and  to  the  credit  of  Accounts  Payable. 

Where  the  business  is  departmentalized  a  more  elaborate  form  of 
Invoice  Book  should  be  used,  giving  departmental  subdivisions  of 
purchases. 

SALES  AND  CREDIT  TICKETS. 

The  use  of  sales  and  credit  tickets  for  recording  sales  and  sales 
returns  has  become  almost  universal. 

A  sales  ticket  must  be  made  out  for  every  sale  and  the  daily  total  of 
these  gives  the  sales  for  the  day.  The  cash  sales  tickets  are  checked 
against  the  cash  received  and  the  charge  tickets  go  to  the  bookkeeper. 
Credit  tickets  must  be  made  out  for  credits  to  customers  and  these 
likewise  go  to  the  bookkeeper. 

LEDGER. 

The  accounts  in  the  ledger  should  be  arranged  in  the  following  order: 

1.  General  accounts, 

2.  Accounts  with  trade  creditors, 

3.  Accounts  with  tcade  debtors, 

allotting  to  each  class  such  space  in  the  ledger  as  may  be  necessary. 

The  general  accounts  should  be  arranged  in  logical  order.  (See  ar- 
rangement of  accounts.) 

Accounts  with  trade  creditors  and  with  trade  debtors  should  be 
arranged  alphabetically,  using  preferably  a  loose  leaf  ledger. 


SYSTEM   OF  ACCOUNTS  FOR  RETAIL  MERCHANTS.  9 

Where  the  volume  of  business  permits,  it  is  advisable  to  use  three 
ledgers,  a  general  ledger,  a  purchase  ledger,  and  a  sales  ledger,  keep- 
ing controlling  accounts  of  the  purchase  ledger  and  the  sales  ledger  in 
the  general  ledger. 

Where  only  one  ledger  is  used  it  should  be  divided  into  three  sec- 
tions corresponding  with  the  above. 

The  balances  of  the  purchase  ledger  and  of  the  sales  ledger,  or  of 
these  sections  of  the  ledger  if  only  one  book  is  used,  must  agree  with 
the  balances  of  the  Accounts  Payable  account  and  of  the  Accounts 
Receivable  account.  The  advantage  of  these  controlling  accounts 
is  that  the  aggregate  of  accounts  payable  and  of  accounts  receivable 
can  be  had  at  any  time  without  listing  the  balances  of  the  individual 
accounts. 

Customers  are  charged  with  goods  purchased  direct  from  the  charge 
tickets.  These  tickets  are  first  listed,  then  turned  over  to  the  book- 
keeper, who  posts  them  to  the  debit  of  the  proper  accounts,  listing  the 
amounts  as  he  posts,  then  comparing  his  total  with  that  of  the  first 
list,  which  must  agree.  Credit  entries  for  allowances,  reductions, 
cash  discounts,  or  returned  goods,  are  made  from  credit  tickets  in  ex- 
actly the  same  manner. 

Posting  to  the  ledger  therefore  must  come  from  one  of  four  sources — 
the  cash  book,  the  journal,  the  invoice  book,  or  the  sales  and  credit 
tickets. 

MONTHLY  SUMMARY  OF  BUSINESS. 

This  record,  Form  A,  will  be  found  very  useful  for  monthly  and 
yearly  comparisons  of  expenses  and  ratios.  It  is  arranged  with 
columns  for  sales,  both  cash  and  credit  and  total,  and  for  the  various 
expenses  of  the  business.  The  figures  on  this  statement  are  taken 
from  the  ledger. 

Each  month  the  figures  for  that  month  should  be  added  to  the 
previous  total  so  that  the  record  will  give  the  totals  from  the  first  of 
the  year  to  date  as  well  as  the  monthly  totals. 

PROFIT  AND  LOSS  STATEMENT. 

The  amounts  for  making  up  this  statement,  Form  B,  can  be  had  from 
the  ledger  and  from  the  trial  balance.  It  is  made  up  at  such  times  as 
the  inventory  is  taken.  A  physical  inventory  should  be  taken  at 
least  once  a  year.  The  basis  should  be  cost  with  conservative  de- 
duction for  obsolete  and  shelf -worn  goods.  The  inventory  at  the 
beginning  of  the  period  is,  of  course,  that  brought  down  from  the 
end  of  the  last  period. 

When  monthly  profit  and  loss  statements  are  desired,  and  where 

the  percentage  of  overhead  and  profit  is  known,  the  approximate  cost 

of  the  goods  sold  can  be  arrived  at  in  the  following  manner:  Deduct 

the  percentage  of  overhead  and  profit  from  100  and  multiply  by  the 

39123°— 16 2 


30  SYSTEM    OF   ACCOUNTS   FOR   EETAIL   MERCHANTS. 

amount  of  the  ret  sales;  the  result  will  be  the  cost  of  the  goods  sold, 
which,  when  deducted  from  net  sales  will  give  the  approximate  gross 
profit  on  sales. 

If  desired,  the  difference  between  the  values  placed  on  the  inven- 
tory and  the  actual  cost  of  same  can  be  shown  on  the  statement. 
Show  the  actual  cost  of  inventory  and  then  the  deduction  under  the 
title  " Stock  Depreciation/'  carrying  the  net  forward  as  illustrated. 
While  this  is  not  necessary  it  is  valuable  information  and  this  method 
is  recommended. 

The  total  net  profit  as  shown  by  the  statement  is  that  carried  to 
the  credit  of  the  proprietor's  account  in  the  ledger. 

BALANCE  SHEET. 

Ledger  accounts  should  be  kept  by  the  double  entry  principle  with 
all  real  (asset  and  liability)  accounts,  as  well  as  with  all  nominal 
(profit  and  loss)  accounts.  A  Balance  Sheet  of  the  same  date  as  the 
Profit  and  Loss  Statement  should  be  made  up  from  the  balances  of  all 
real  accounts.  The  ordinary  asset  and  liability  accounts  and  a  logical 
classification  thereof  are  shown  by  Form  C. 

ACCOUNTS  AND  THEIR  EXPLANATIONS. 

REAL  ACCOUNTS. 

fc» 

1.    CASH   ON  HAND  AND  IN   BANK. 

Charge  this  account  with  the  total  receipts  of  the  month  and  credit 
it  with  the  total  disbursements  as  shown  by  the  cash  book.  The 
balance  should  agree  with  the  cash  book  balance. 

2.    NOTES  RECEIVABLE — TRADE   CUSTOMERS. 

Charge  this  account  with  all  notes,  time  drafts,  and  acceptances 
held  against  others,  and  credit  it  with  the  same  when  paid  or  otherwise 
disposed  of.  The  balance  will  show  the  uncollected  notes  receivable. 

3.  ACCOUNTS  RECEIVABLE — TRADE  CUSTOMERS. 

Charge  this  account  with  the  total  of  the  charge  tickets  of  the 
month,  and  credit  it  with  the  cash  payments  by  customers  (taken 
from  the  cash  book  at  end  of  month)  and  with  notes  receivable,  dis- 
counts, returns,  and  allowances  (from  the  journal  and  credit  slips). 
Balance  of  this  account  must  agree  with  the  sum  of  the  balances  of 
trade  customers'  accounts. 

4.    RESERVE   FOR   BAD   DEBTS. 

Credit  this  account  with  an  estimated  amount,  based  on  charge 
sales,  sufficient  to  provide  for  losses,  and  charge  the  account  with  the 
balances  of  personal  accounts  when  hope  of  collection  is  abandoned. 


SYSTEM   OF   ACCOUNTS  FOR  RETAIL  MERCHANTS.  11 


5.    PREPAID   INSURANCE. 


Charge  this  account  with  all  insurance,  fire,  burglary,  fidelity,  plate 
glass,  liability,  etc.  At  the  end  of  each  month  charge  the  proper 
accounts  (Nos.  35  and  44)  with  their  proportion,  the  balance  being 
an  asset  as  "Prepaid  Insurance." 


G.    ACCRUED   INTEREST   RECEIVABLE. 


Charge  this  account  at  the  end  of  the  period  with  all  accrued  interest 
(not  yet  paid)  on  notes,  etc.,  due  from  others,  crediting  "Interest 
Account."  When  the  interest  is  received  it  is  credited  to  "Accrued 
Interest  Receivable." 


7.    STORE   PROPERTY. 


Charge  this  account  with  the  purchase  price  of  the  store  property. 
Do  not  charge  repairs  to  this  account,  unless  they  are  in  the  nature 
of  permanent  improvements.  A  fair  amount  should  be  periodically 
credited  to  "Reserve  for  Depreciation." 

8.    WAREHOUSE   PROPERTY. 

Charge  tms  account  with  the  purchase  price  of  the  warehouse  prop- 
erty. Do  not  charge  repairs  to  this  account,  unless  they  are  in 
the  nature  of  permanent  improvements.  A  fair  amount  should  be 
periodically  credited  to  "Reserve  for  Depreciation." 

9.    RESERVE   FOR   DEPRECIATION    ON   STORE   AND   WAREHOUSE. 

Credit  this  account  with  the  amount  of  depreciation  on  store  and 
warehouse,  and  charge  same  to  "Rent  Income"  (No.  44). 

10.    STORE    EQUIPMENT. 

Charge1  this  account  with  the  value  of  all  equipment  such  as  coun- 
ters, shelving,  scales,  measures,  etc.,  used  in  the  conduct  of  the  busi- 
ness. A  fair  amount  should  be  written  off  periodically  for  deprecia- 
tion. 

11.    OFFICE    EQUIPMENT. 

Charge  this  account  with  office  furniture,  desks,  safe,  and  other 
office  appliances  (not  included  in  34).  A  fair  amount  should  be 
written  off  periodically  for  depreciation. 

12.    DELIVERY   EQUIPMENT. 

Charge  this  account  with  the  cost  of  automobiles,  wagons,  horses, 
and  harness.  This  account  must  not  be  charged  with  repairs  to 
automobiles  and  wagons,  horseshoeing  or  anything  of  this  nature. 
A  fair  amount  should  be  written  off  periodically  for  depreciation. 


12  SYSTEM    OF   ACCOUNTS  FOR  RETAIL   MERCHANTS. 

13.    NOTES   PAYABLE — TRADE   CREDITORS. 

Credit  this  account  with  all  notes  given  to  trade  creditors  or  time 
drafts  accepted  in  their  favor  and  charge  the  account  as  the  same  are 
paid.  Balance  of  this  account  shows  the  amount  of  notes  payable 
outstanding. 

14.    NOTES   PAYABLE — BANKS. 

Credit  this  account  with  all  notes  given  to  banks  and  charge  the 
account  as  the  same  are  paid. 

15.    ACCOUNTS   PAYABLE — TRADE    CREDITORS. 

Credit  this  account  with  merchandise  bought  on  account,  the 
amount  being  carried  to  this  account  monthly  from  the  total  of  the 
Invoice  Book  and  charge  it  with  all  merchandise  returned  and  reduc- 
tions (Journal) ,  and  payments  made  and  discounts  taken  (Cash 
Book).  Balance  of  this  account  must  agree  with  the -sum  of  the 
balances  of  trade  creditors'  accounts. 

16.  ACCOUNTS  PAYABLE — OTHERS. 

Credit  this  account  with  amounts  owing  to  creditors  other  than 
trade  creditors. 

17.  ACCRUED   INTEREST  PAYABLE. 

Credit  this  account  at  the  end  of  the  period  with  interest  accrued 
(not  yet  paid)  on  notes,  etc.,  due  others,  charging  "Interest  Account." 
When  the  interest  is  paid  it  is  charged  to  "Accrued  Interest  Payable. " 

18.    ACCRUED    SALARIES   AND   WAGES. 

Credit  this  account  with  salaries  and  wages  earned  and  unpaid  at 
the  end  of  each  month  and  charge  the  proper  expense  accounts. 
When  payment  is  made  this  account  is  charged  and  closed  out  and 
the  balance  of  the  pay  roll  charged  in  the  regular  way. 

19.    ACCRUED   TAXES. 

Credit  this  account  with  the  taxes  due  up  to  the  end  of  each  month, 
charging  the  proportionate  amounts  to  the  accounts  in  which  they 
belong.  When  the  taxes  are  paid  this  account  will  be  charged. 

20.  PROPRIETOR'S  DRAWING  ACCOUNT. 

Charge  this  account  with  all  withdrawals  of  cash  (not  salary).  At 
the  end  of  the  period  the  amount  of  this  account  is  closed  into  pro- 
prietor's capital  account. 

21.    MORTGAGES   PAYABLE. 

When  a  mortgage  is  placed  upon  real  estate  (or  assumed  at  the 
time  of  purchase)  this  account  is  credited.  When  paid  it  is  charged. 


SYSTEM    OF   ACCOUNTS   FOR   RETAIL   MERCHANTS.  13 

22.  PROPRIETOR'S  CAPITAL  ACCOUNT. 

This  account  represents  the  proprietor's  net  capital.  At  the  end 
of  the  period  the  net  profit  is  credited  to  this  account.  The  amount 
of  his  drawing  account  is  then  closed  into  this  account.  The  balance 
of  the  account  is  his  net  capital  at  time  of  closing. 

In  the  event  of  a  partnership  each  partner's  net  capital  would  be 
shown  in  his  respective  account  and  the  net  profit  (or  loss)  carried  to 
the  credit  (or  debit)  of  their  accounts  in  agreed  proportions.  In  the 
event  of  a  corporation  this  account  represents  the  amount  of  the 
issued  capital  stock  and  the  profit  or  loss  is  carried  to  " Surplus'7 
account. 

NOMINAL  ACCOUNTS. 

23.    SALES, 

Credit  this  account  with  the  total  sales  of  all  merchandise,  the 
charged  sales  being  taken  from  the  total  of  the  charge  tickets  for  the 
month  and  the  cash  sales  from  the  "Cash  Sales''  column  in  the  Cash 
Book.  Returns  should  be  charged  at  selling  price  for  all  merchandise 
returned  by  customers  whether  for  cash  or  credit.  The  difference  in 
this  account  will  be  the  net  sales  which  is  transferred  to  the  credit  of 
"Trading  Account." 

24.    SALES   ALLOWANCES. 

Charge  this  account  with  any  allowance  given  a  customer  not 
contemplated  when  sale  was  made.  Allowances  should  not  be  charged 
to  "Sales,"  but  closed  at  the  end  of  the  period  into  "Trading  Ac- 
count. " 

25.    MERCHANDISE   PURCHASES. 

Charge  this  account  with  the  face  of  the  invoices  of  merchandise 
before  deducting  cash  discounts.  The  account  is  also  charged  with 
freight,  expressage,  and  drayage  on  merchandise  purchased.  Credit 
the  account  with  any  returns  of  merchandise  made  to  manufacturer 
or  wholesaler  and  with  any  allowances  for  defects  in  goods  received 
from  manufacturer  or  wholesaler.  The  balance  of  the  account  is 
transferred  to  the  debit  of  Trading  Account. 

26.    SALARIES   AND   WAGES    OF   BUYING   FORCE. 

Charge  this  account  with  part  of  salary  of  proprietor,  active  partner, 
and  manager  or  buyer  and  the  wages  of  office  force  proportionate  to 
the  time  given  to  buying.  If,  for  example,  the  proprietor  estimates 
altogether  that  he  gave  one-fourth  of  his  time  to  buying  and  three- 
fourths  to  selling,  then  one-fourth  should  be  charged  to  this  account 
and  three-fourths  to  "  Salaries  and  Wages  of  Sales  Force. "  Similarly, 
the  estimated  number  of  hours  a  week  given  by  any  member  or 
members  of  the  office  force  to  buying  should  be  charged  to  this  ac- 
count. 


14  SYSTEM    OF   ACCOUNTS  FOR   RETAIL   MERCHANTS. 

27.    MISCELLANEOUS   BUYING   EXPENSE. 

Charge  this  account  with  the  traveling  expense  of  buying  trips  and 
other  expense  incurred  in  buying  (not  covered  by  account  26) . 

28.  SALARIES  AND  WAGES  OF  SALES  FORCE. 

Charge  this  account,  with  wages  and  other  remunerations  of  sales 
persons,  order  takers,  and  all  others  engaged  in  selling,  both  as 
regular  and  extra  force;  also  with  the  part  of  the  salary  of  the  pro- 
prietor, active  partners,  or  manager,  and  of  the  wages  of  the  office 
force  proportionate  to  the  time  given  to  selling. 

29.    ADVERTISING. 

Charge  this  account  with  all  expenditures  for  advertising  pur- 
poses, such  as  space  in  newspapers  and  periodicals,  space  on  street 
cars  and  billboards,  circulars  and  postage  thereon,  advertising 
novelties,  trading  stamps,  charitable  donations,  window  display, 
electric  signs,  etc. 

30.    MISCELLANEOUS   SELLING   EXPENSE. 

Charge  this  account  with  the  cost  of  wrapping  paper,  cartons,  twine, 
salesmen's  order  books,  and  all  other  items  of  direct  selling  expense 
notcovered  by  "  Salaries  and  Wages  of  SalesForce"  and  "  Advertising.'7 

31.    SALARIES   AND   WAGES   OF   DELIVERY  FORCE. 

Charge  this  account  with  regular  and  part  time  of  employees 
engaged  in  delivering  and  with  "the  part  of  the  wages  of  other  em- 
ployees, whether  on  sales  force  or  office  force,  proportionate  to  the 
time  given  to  delivery  work. 

32.  MISCELLANEOUS   DELIVERY   EXPENSE. 

Charge  this  account  with  all  stable  and  garage  expense,  including 
all  repairs,  taxes,  licenses,  upkeep,  and  with  the  depreciation  charged 
on  the  delivery  equipment;  also  charge  this  account  with  payments 
for  express,  parcel  post,  and  contract  delivery  service. 

33.  MANAGEMENT   AND   OFFICE    SALARIES. 

Charge  this  account  with  the  salaries  of  the  manager,  bookkeepers, 
office  clerks,  stenographers,  and  of  other  general  office  help  not  other- 
wise charged. 

34.    OFFICE   SUPPLIES  AND   EXPENSE. 

Charge  this  account  with  purchases  of  stationery  of  all  sorts, 
account  books  and  forms  (except  selling  and  stock  forms),  typewriter 
supplies,  printing  and  postage  (except  advertising),  and  depreciation 
on  office  equipment. 


SYSTEM   OF   ACCOUNTS  FOR  RETAIL  MERCHANTS.  15 

35.   INSURANCE   ON   STOCK  AND   STORE   EQUIPMENT. 

Charge  this  account  with  all  expense  of  insurance,  fire,  burglary, 
fidelity,  plate  glass,  employers'  liability,  and  other.  This  account  is 
not  to  be  charged  with  insurance  on  store  or  business  property. 

36.    TAXES    ON   STOCK   AND   STORE    EQUIPMENT. 

Charge  this  account  with  taxes  on  all  stock  and  store  equipment. 
As  taxes  are  not  payable  in  advance,  the  amount  charged  this  account 
must  be  credited  to  "Accrued  Taxes. " 

37.    LOSSES   FROM    BAD   DEBTS. 

Charge  this  account  with  the  amount  that  has  been  reserved  for 
bad  debts  (4). 

38.    MISCELLANEOUS   GENERAL   EXPENSE. 

Charge  this  account  with  heat,  light,  repairs,  depreciation  on  store 
equipment,  and  with  any  items  that  can  not  be  charged  directly  to 
any  of  the  above  particular  accounts. 

39.    RENT. 

Charge  this  account  with  all  rents  paid.  If  the  store  is  owned, 
rent  should  be  charged  equivalent  to  the  amount  it  could  be  rented 
for  to  others,  crediting  " Income  from  Other  Sources;"  in  the  latter 
event,  " Income  from  Other  Sources"  should  be  charged  with  the 
taxes,  insurance,  repairs,  and  depreciation  on  the  store. 

40.    TRADING  ACCOUNT. 

This  account  shows  the  inventory  of  merchandise  at  opening  and 
is  not  touched  again  until  the  books  are  closed.  It  is  then  charged 
with  Merchandise  Purchases  (25),  and  Sales  Allowances  (24),  and 
credited  with  Sales  (23).  The  inventory  at  closing  is  then  credited 
and  the  balance  will  show  the  gross  profit  on  trading.  The  gross 
profit  is  transferred  to  the  credit  of  the  "Profit  and  Loss  Account." 
The  inventory  is  then  brought  down  as  a  new  balance. 

41.  PROFIT  AND   LOSS   ACCOUNT   (FROM   TRADING   OPERATIONS). 

Charge  this  account  with  the  balances  of  all  the  expense  accounts, 
and  credit  it  with  the  gross  profit  from  trading;  the  difference  will 
be  the  net  profit  or  loss,  which  is  closed  into  the  proprietor's  account; 
if  a  partnership,  to  the  partners'  accounts,  according  to  their  several 
interests,  and,  if  a  corporation,  to  the  surplus  account. 


16  SYSTEM    OF   ACCOUNTS  FOR  RETAIL   MERCHANTS. 

42.   INTEREST. 

Charge  this  account  with  all  interest  paid  and  credit  it  with  all 
interest  received  and  close  into  "Profit  and  Loss  Account." 

43.    CASH   DISCOUNT   ON   MERCHANDISE   PURCHASES. 

Credit  this  account  with  all  cash  discount  taken  on  purchases  of 
merchandise.  The  account  is  closed  into  Profit  and  Loss. 

A  record  of  such  discounts  available  but  not  taken — cash  discounts 
lost — will  be  found  of  use. 

44.    RENT  INCOME    (NET). 

If  the  store  is  owned,  the  rent  which  has  been  charged  to  account 
39  should  be  credited  to  this  account  and  it  should  be  charged  with 
insurance,  taxes,  depreciation,  and  repairs  on  store.  The  account  is 
closed  into  "  Profit  and  Loss." 

45.    MISCELLANEOUS   OUTSIDE   INCOME. 

Credit  this  account  with  incidental  receipts  such  as  toll  from  tele- 
phone pay  stations  in  store,  etc. 

(We  wish  to  acknowledge  with  appreciation  the  valuable  assistance  given  us  by  the  Bureau  of  Business 
Research  of  Harvard  University  in  connection  with  the  classification  and  definition  of  expense  accounts.) 

FORM  OF  STATEMENTS. 

Forms  of  monthly  summary  of  business,  profit  and  loss  statement, 
and  balance  sheet  follow. 


SYSTEM   OF   ACCOUNTS   FOR  RETAIL   MERCHANTS. 


17 


.p    kjc 


, 

1IF 


Per 

Sa 


18  SYSTEM    OF   ACCOUNTS  FOE  RETAIL   MERCHANTS. 

PROFIT  AND  LOSS  STATEMENT,  JAN.  31,  1916. 


23 

Sales                                        

$4,659 

96 

Perct. 

Perct. 

24 

Less  Sales  Allowances 

2 

00 

Net  sales  

4,657 

% 

100.0 

$3  451 

09 

25 

Merchandise    Purchases    (cost    delivered 

2,759 

67 

Deduct  inventory  of  merchandise  at  closing. 

$3,062 

17 

6,210 

76 

153 

11 

2  909 

06 

3  30i 

70 

70.9 

Gross  profit  from  trading  

1  356 

26 

29.1 

26 

BUYING  EXPENSE. 

25 

00 

i'7 

14 

00 

39 

00 

0.8 

oy 

SELLING  EXPENSE. 

177 

33 

29 

30 

00 

30 

3 

7T 

211 

08 

4.5 

01 

DELIVERY  EXPENSE. 

Salaries  and  Wages  of  Delivery  Force    .... 

102 

67 

•JO 

g 

08 

Total  delivery  expense  

110 

75 

2.4 

0') 

GENERAL  EXPENSE. 

Management  and  Office  Salaries 

269 

00 

34 

Office  Supplies  and  Expense    

22 

OH 

35 
30 

Insurance  on  Stock  and  Store  Equipment  .  . 
Taxes  on  Stock  and  Store  Equipment  

1 
2 

61 
50 

37 

Losses  from  Bad  Debts                .  .  

33 

56 

00 

Miscellaneous  General  Expense 

26 

7Q 

•7f| 

Rent                         

71 

?5 

426 

7-1 

787 

57 

9.2 

16.9 

Net  profit  from  trading      

568 

6Q 

12.2 

1° 

INCOME  FROM  OTHER  SOURCES. 

Interest                 

17 

00 

43 
41 

Cash  Discounts  on  Merchandise  Purchases.  . 
Rent  income  (net)                        

6 
16 

55 

5? 

4r> 

Miscellaneous  Outside  Income           

2 

00 

7 

98 

576 

67 

FORM  B. 


SYSTEM    OF   ACCOUNTS   FOB  RETAIL   MERCHANTS.  19 

BALANCE  SHEET,  JAN.  31,  1916. 


1 

ASSETS. 

CURRENT  ASSETS. 

Cash  on  hand  and  in  bank 

81  611 

67 

V 

Notes  Receivable  —  Trade  Customers  

'191 

84 

3 

Accounts  Receivable  —  Trade  Customers  

$3.518 

K1 

,| 

Less  Reserve  for  Bad  Debts 

33 

56 

3  485 

2«5 

Inventory  of  merchandise  (at  cost) 

2  909 

06 

r, 

Prepaid  Insurance 

100 

14 

6 

Accrued  Interest  Receivable  .  . 

71 

Total  current  assets 

*8  298 

67 

7 

FIXED  ASSETS. 

Store  Property  

4  500 

00 

s 

Warehouse  Property 

1  975 

00 

9 

Less  Reserve  for  Depreciation  on  Store  and  Warehouse. 

6,475 
26 

00 
08 

6  448 

02 

10 

Store  Equipment 

'272 

71 

11 

Oflire  Equipment    

74 

37 

12 

Delivery  Equipment 

396 

67 

Total  fixed  assets       .  .  . 

7  191 

77 

Total  assets  

15  490 

44 

is 

LIABILITIES  AND  CAPITAL. 

CURRENT  LIABILITIES. 

Notes  Payable  —  Trade  Creditors 

1  210 

50 

i  \ 

Notes  Payable  —  Banks. 

900 

00 

iri 

Accounts  Payable  —  Trade  Creditors  

3  685 

79 

ift 

Accounts  Payable  —  Others 

485 

00 

17 

Accrued  Interest  Payable  

19 

?3 

IS 

Accrued  Salaries  and  Wages 

82 

00 

19 

Accrued  Taxes  

.7 

75 

Total  current  liabilities  

6,390 

?0 

?1 

Mortgages  Payable  (warehouse) 

1  250 

00 

Total  liabilities  

7,640 

?o 

?? 

Proprietor's  Capital  Account  .  . 

7  850 

94 

Total  liabilities  and  capital    

15  490 

44 

FORM  C. 


• 


OVERDUE. 


OCT    2. 
161932 


MAR 


r  r»r      -t   r*      4f  •••"• 

,  EB  lo  iwJy 


M&R231942 


LD  21-50m-8,-32 


Syracuse,  N.  V. 
PAT.  JAN.  21 ,1908 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


